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FDIC Federal Register Citations

BANK OF AMERICAN FORK

Robert E. Feldman, Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

September 17, 2004

RE: 12 CFR 345 Comments
RIN number 3064-AC50

Dear Mr. Feldman

Bank of American Fork supports the following:

 We support the proposed change to increase the size of the bank to $1 billion in order to be considered under the small bank CRA examination.
 We further support adding the community development criterion to the streamlined evaluation for small banks with assets greater than $250 million and less than $1 billion. Ideally, we would like the community investment test be eliminated under the small bank examination procedures.
 In addition, we support expanding the community development definition to encompass a broader range of activities in rural areas.

BAF has supported and will continue to support small farm, small business community development lending to all qualified borrowers.

We have always felt that the small bank definition should include all banks under $1 billion in assets. Small banks have to ensure they are serving all segments of their community, i.e., low, moderate, middle and high income census tracts, in order to survive. Community banks are closer in touch to all members of the community when compared to large banks, non-bank banks, etc. Our assessment area covers some rural areas and we do limited lending outside our assessment areas that are rural by definition. We recognize the need to help the small farm and small business operation in order for our local and national economy to succeed. Furthermore, it is critical to the future of our children to provide opportunities to start small farm and small business operations. Small farm and small business operations are critical to the success of the free enterprise system in our country. Regardless of income status, i.e., low, moderate, middle and high income, lending should be available based on the credit worthiness of the applicant


The cost of operating a CRA department under the current large bank definition is prohibitive. We hope that, with the new CRA definition, some of the documentation burden will be eliminated. Such a reduced workload would help our bank spend the same amount of time lending to community development projects, lending to low and moderate income borrowers, etc., as always without the excess analysis and documentation requirements. We could then better use our CRA officer’s time to conduct risk management analysis to ensure our bank is safe and sound without undue burden of analysis and documentation. This reduction in analysis and documentation will allow at least 15-20 hours a month to be directed toward risk analysis, loan review, compliance and other responsibilities that are critical for our bank’s survival. This would translate to shifting $10,000 to $15,000 in financial resources, for a small community bank of our size, toward more productive areas like risk management analysis that is so critical in our ever changing world of security intrusion, fraud, terrorism, etc.

The proposal does add a new community development criterion for the small bank examination standards for banks between $250 million and $1 billion. This criterion requires evaluation of one or more of the bank’s community development activities (CD lending, services and/or investments), with the mix to be determined by the opportunities present in the community and the bank’s own strategic strengths. However, because of significant, coordinated opposition from CRA activist groups, including orchestrating a letter from 31 Senators to the heads of the banking agencies strongly opposing any increase in the small bank threshold, the FDIC has sought a compromise (this is a major concern of CRA activists, since donations by banks to them often count towards the investment test). This compromise is the new Community Development (CD) factor in the small bank evaluation for banks between $250 million and $1 billion. In our opinion, banks will still make prudent contributions toward community development investments if they are safe and sound and meet the bank’s strategic investment goals. For our bank, we are focusing our efforts, and will continue to focus our efforts, on lending to community development projects that target low and moderate income individuals.

CRA activists do have their own agenda and it may be self-serving rather than truly serving the needs of low-and moderate-income individuals. Where does most of the money come from to fund non-profit organizations? Banks of course. There is undue pressure for banks to give out money. Banks are an easy target since businesses and credit unions are not under the same pressure to comply with CRA.

All of the Agencies originally proposed raising the small bank threshold to $500 million, without any CD test. We suggest that ABA urge the FDIC to retain that part of their original proposal, because the banks under $500 million are most severely overburdened by excessive regulation and most are in areas with only limited CRA investment opportunities. We would then support the increase of the small bank threshold to $1 billion with an additional CD test, for banks over $500 million in assets as a significant improvement in the current CRA regulations and as a much improved "investment test" component.

The FDIC specifically requests comments on whether the new CD criterion should be a separate test in addition to the small bank standard. If such a test should be added, how should CD activities be weighted with the small bank performance standard in assessing overall CRA performance? We oppose a separate test, for several reasons.

 First, such a separation creates the impression that CD lending is separate from the provision of credit to the entire community, which is the stated standard under the Community Reinvestment Act. The current small bank test looks primarily at lending – as required by the law. The current test considers the institution's loan-to-deposit ratio; the percentage of loans in its assessment areas; its record of lending to borrowers of different income levels and businesses and farms of different sizes; the geographic distribution of its loans; and its record of taking action, if warranted, in response to written complaints about its performance in helping to meet credit needs in its assessment areas. A separate test would create an additional CD obligation. It could then become a focal point for criticism from CRA activists, since that is where their grants and donations will be counted.
 Second, the difficult question of how much weight in the examination should be placed on just one category of community lending would continue to distort the CRA examination process. Creation of a CD test will put CD loans, CD investments, and CD services into the same test, which raises the question of how to rate the equivalency of loans versus investments versus services.

Changing The Definition of Community Development

All of the Agencies originally proposed raising the small bank threshold to $500 million, without any community development test. We suggest the FDIC retain that part of their original proposal, because banks under $500 million are most heavily overburdened by excessive regulation and most are in areas with only limited CRA investment opportunities. We would support the increase of the small bank threshold to $1 billion with an additional community development test for over $500 million banks as a significant improvement in the current CRA regulations and as a much improved “investment test” component. Ideally, we would want to see the community development test eliminated altogether for banks with assets under $1 billion, it is still a burden to collect and analyze the data under the ‘investment test” requirements.

The addition of a category of community development lending (and services to aid lending and investments as a substitute for lending) fits well within the concept of serving the whole community. A separate test would create an additional community development obligation, not contained in the statue, that would take on a life and emphasis of its own separate from, and in addition to, lending to the entire community. It could then become a focal point for criticism from CRA activists, since that is where their grants and donations will be counted. The difficult question of how much weight in the examination should be placed on just one category of community development lending would continue to place an imbalance on the CRA examination process. Creation of a community development test will put community development loans, community development investments, and community development services into the same test. The question becomes, how do you rate the equivalency of loans versus investments versus services. Would community development lending be weighed twice as much, one half as much, or some other percentage as the investment test? We believe there should be simply a community development lending test and eliminate the community development investment test. Community development investment test was never considered within the original CRA regulation. Community development investments are limited and are a burden to monitor.

Sincerely,
Dale O. Gunther
President and CEO
Bank of American Fork

Last Updated 09/30/2004 regs@fdic.gov

Last Updated: August 4, 2024